Monday, April 30, 2007

The Swedish Model: Economic Observations 101






For those of you who might be completely bored by this title, trust me, I agree. For those of you who have been waiting for me to finally broach the subject of America and Sweden’s, shall we say, “differing” economic approaches, this is your special day.

When I started this blog, I promised that it would not get political, would not be a soapbox for you to listen to my rants about life and generally would not be inappropriately personal—all approaches to blogging you can find on another of the other 40 million blogs out there. The goal of this blog is help those who know me (and have come to know me through the blog) understand a little about my experience of two years living and working abroad. But really, what worth is a blog about Sweden if it doesn’t devote at least one entry to the well-known Swedish economic model?

While discussing varying economic approaches is inherently political, I assure you that I am the last one to make any final assertions or grand conclusions about economic approaches. I am many things, but an economist is definitely not one of them. With that, I will do my best to share some simple observations about the contrasting economic models of my two countries based on my relatively brief stay here in Sweden. Reader awareness of (and familiarity with) the strict capitalism found in the U.S. and the “middle road” between social welfare and capitalism of Sweden is assumed.

The first observation is that, no matter which country you discuss, the preoccupation with and social focus on the economy and money is very similar. Americans love their money and so do Swedes. While materialism (along with the sheer size and amount of things) is higher in the U.S., Swedes are also concerned with the security and image that comes with this material gain. I won’t claim that materialism is “human,” but it’s tough to argue that it’s not the latest religion of the West.

A few blogs ago, I presented an article from The Local, an online Swedish news website in English. It stated that the average Swedish income was roughly 335,000 Swedish Krowns per year, or about $48,000. This is one of the highest average salaries in the world, but the progressive tax scale keeps taxes for everyone, and especially the rich, very high. Just to give some perspective, tax on this average salary is about 33%, as I understand, whereas in the U.S. this salary would be taxed at approximately 27 – 28%. In Sweden, goods and services are taxed at 25% and food is 17%, whereas in the U.S., everything is 8.8%. Please offer your corrections on these all-important numbers if you have them.

In Sweden, the “cradle-to-the-grave” benefits are well known and well appreciated by everyone. Though no one embraces high taxes, most I’ve spoken with are content with the greater good. This blog has already discussed the 12 – 16 month maternity and paternity leave due to all new mothers and fathers. As for vacation time, in July you will see the world-renowned Swedish vacation time employed on this blog (as virtually all of Sweden shuts down for the month) and in the U.S., you have about two weeks vacation per year, depending on your job, because if you don’t like it, someone else will gladly take your place. Tough to argue with the enjoyment that comes with six weeks of vacation for everyone. Retirement is also healthy in Sweden and comfortably supports the average Swede throughout the non-working years.

I read an article in Newsweek this week that stated plainly the importance of attitude in economics. A society’s attitude towards work and achievement is vital to the economic outlook. My observation is that Swedes take pride in a job well done, but one rarely finds the work obsession that you find with many in the U.S. Work is a part of life, but certainly not all of it as is so often the case Stateside.

One of the reasons this “middle road” works here in Sweden is that Swedes are motivated by a “job well done” as well as financial incentives, not just the financial incentives as is common in the U.S. Very broad generalizations here, I know, but applicable on the whole. There are reasons, I believe, that the Swedish model seems to work here and there are reasons why, I believe, it would fail in the U.S. “Job well done” is one reason and another is the trusting society of Sweden. Generally speaking, I’ve noticed that Swedes, presumably since there are so few of them, trust each other more than Americans. Certainly the sheer numbers affect the trust in a society, but this is a reality to consider nonetheless. A social welfare model of any form must be founded on some level of trust throughout society and especially of, gulp, the government.

Nationwide, comparing the quality of life of the two countries is a very tricky process. When comparing economic models, how do you compare 9.5 million Swedes (roughly half the size of Los Angeles County) to 300 million in the U.S? As a whole, there’s no question in my mind that the overall quality of life is dramatically higher here in Sweden. “Cradle-to-grave” benefits for everyone is hard to overcome in the argument of quality of life, even if the highest quality of care may be harder to attain here than in the U.S. due to the numbers of people involved in the process. In the give and take between individual and society, 9.5 million people is much easier to deal with than 300 million. On this topic, I just can’t let go of the 40 million people in the U.S. without what most everyone agrees is a basic right of life, basic health care. That's an astonishing number for what many people argue is the best economic model the world has ever seen...

If you’ve read this far, consider yourself a Linköpinglivin reader Hall-of-Famer. I hope it wasn’t as boring to read as it was to write. Alas, a very important topic. Again, please feel free to share your insights should you be so compelled.

I have spoken with both Swedes and Americans who think their system is the world’s best and I have spoken with both Swedes and Americans who think the other’s system is the world’s best. The debate continues…

For those of you interested, LHC lost in the finals of the Eliteserien, a disappointing conclusion to their best season ever. And last week I attended my first-ever womens soccer game, Linköpings Fotboll Club against mighty Umeå. In a very good game, Umeå finally prevailed 2 – 0.

This coming week, we literally set Sweden ablaze in celebration of spring, so see you next week for a Swedish bonfire extravaganza!

And yes, these pictures have been a shameless attempt to keep the waning interest of this week’s readers. Some of my favorite places in the world: Prague, Copenhagen, Linköping and Catalina Island off the coast of Southern California is as close to the Mediterranean as you’ll find in the U.S., and a favorite locale for my family this time of year.

7 comments:

Zachary said...

Count me in the latter type of reader you have. It would be interesting to know what those who go to school for long periods post high-school (to become say a Engineer or Lawyer) have to say regarding the high taxation and the redistribution of a certain extent of wealth to those who didn't take the extra years to learn a specific trade. Keep the economic posts coming Sean!

Johan Gunnarsson said...

As you brought it up...

Sweden has three levels of taxation of goods and services ("moms" in Swedish), to comply with EU regulations. The standard rate is 25%. Food, hotel rooms and art is 12%. The lowest rate is 6% and it applies to books, newspapers, cultural exhibitions/events (museums, concerts etc), transportation and some other services. Lectures given in schools and universities are moms-free.

The theatre counts as a cultural event, if you're wondering about how much of what you're paying for the ticket next week will go straight to Anders Borg (the Swedish minister of finances).


I found your blog, by the way!

Ang said...

I used up a good majority of my two weeks vacation on a wonderful trip to Disney World ... now back to the grind. Always love your posts and views, Sean!

Skhor said...

Great post, Sean! I've been waiting for some political observations to come out of Linkopinglivin'...this was perfect!

-Sarah

Christopher said...

Sean, good stuff. I only wish America were as progressive. I refuse to believe that we can't do a better job than we're currently doing without effecting the economy one bit. Take all the money we're spending in Iraq and reinvest it in people and you have limited world hunger and healthcare for all our peeps.

Svenska Momma said...

Hej Sean,
Thanks for this installment-very informative and insightful. I so enjoy your blog - can't wait to see you in June! Karen

Johanna said...

Hey, lets see if I can get this right (and in sort of correct english...)

Everyone has to pay community tax, it's about 31 % of your salary. If you earn over 27 300 SEK a month you'll have to pay an extra 20 % on THAT money (over 27 300) to the state (as in Svea Rike). If you earn more than 40 700 SEK a month you will have to pay an extra 25 % on THAT money, so called national defence levy. On top of this you have to pay 7 % to Allmänna pensionsfonden, app (common pension fond, typ).. Then, on top of this, your employer pays about 32 % of what you earn directly to the state. So, if you earn, let's say 100 000 sek a month (wich isn't very likely but anyways...) First, your employer will pay 32 420 sek in taxes. Then you will pay 30 128 sek in community taxes (if you live in linköping). Then 17 488 sek will go to the swedidh state and 2 158 will be automatically saved for your pension. And this would leave you with about 50 000 sek in your pocket, like it or not. So, 68 %, or 89 584 sek will be taxes of some sort and you will have about 32 % of the 132 420 that your employer had to pay. All this can be found (in swedish) at http://www.regeringen.se/sb/d/8871 and http://www.ekonomifakta.se/sv/Fakta/Skatter/Rakna_ut_din_skatt/